Economic Update 3-03-2025

Economic data included U.S. GDP for Q4-2024 coming in unchanged, but Q1 expectations were revised downward. Personal income and spending were strong, while PCE inflation continued to decelerate. Housing data was mixed with home prices continuing to rise, although at a slower pace, and new home sales fell sharply. Consumer confidence continued to show lackluster results.

Equities were mixed, with U.S. value and U.K. outperforming, and negative results elsewhere. U.S. bonds fared positively as interest rates declined along with inflation and some fears about growth. Commodities fell back across the board, along with a stronger U.S. dollar.

U.S. stocks saw a back-and-forth week, highlighted by news clips and worries about potential tariffs and mixed economic data. By the end of the week, the President’s confirmation that tariffs on Canada and Mexico are set to take effect next week, along with a vow to double tariffs on China, resulted in weaker market sentiment. By the end of Friday an apparent chaotic meeting between President Trump and Ukrainian President Zelensky, set up as a potential deal for U.S. reconstruction aid in return for natural resources, left more uncertainty about near-term European activity.

Economic Update 2-24-2025

On a week shortened by President’s Day, economic data included mixed results for regional manufacturing, while leading economic indicators fell back from the prior month, as did consumer sentiment and home starts and sales.

Equities fell back in the U.S. with investors cautiously looking at future policy and consumer impact, while international stocks performed better, as recent trends have moved in their direction. Bonds ticked up slightly and commodities were mixed, with little change oil prices.

After a promising start earlier in the week, U.S. stock fell back into the negative with uncertainty about tariffs after several comments from the administration, although light on detail. Thursday and Friday were soured by weaker consumer confidence and cautious guidance from Walmart, despite above-consensus earnings results, concerning anticipated weaker results in the year ahead due to persistent inflation and tariff uncertainty.

Economic Update 2-18-2025

Economic data was highlighted by consumer price inflation that came in hotter than expected, as did producer price inflation. Positive results were seen in industrial production, while retail sales fell back for the month, with perhaps weather and turn of the year seasonal effects skewing several of these measures.

Equities saw gains globally, as markets celebrated what appeared to be a less dramatic and broad tariff policy. Bonds were up slightly although yields were little changed, with foreign bonds helped by a weaker dollar. Commodities were up across the board.

U.S. stocks saw gains overall, although the week saw its share of uncertainty, mostly on the tariff front. There was a bit of a hiccup mid-week, after the especially hot CPI inflation report, which continues to push out the possibility of further Federal Reserve rate cuts in the near term. Markets turned upward with rising odds of a Ukraine-Russia peace deal, which was reportedly being discussed in Munich. As noted earlier, announcements of tariffs on steel/aluminum and ‘reciprocal’ tariffs on all countries were seen as less severe than feared, as recent tariff comments have not been reacted to as strongly as they once might have been, and the decision to not introduce full global tariffs provided some relief. Growth stocks broadly outperformed value, and large cap outgained small. By sector, technology gained nearly 4% for the week, followed by the mix of communications, materials, energy, and consumer staples. Healthcare lagged with a decline of over a percent. Real estate saw a small gain.

Economic Update 2-10-2025

Economic data for the week included strength in broad manufacturing measures, while services decelerated but remained strong. Other releases were mixed, with construction spending up, while consumer sentiment declined. The January employment situation report showed slower job growth but upward revisions for prior months, while the unemployment rate fell.

Equities were mixed globally, with declines in the U.S. offset by gains overseas, as tariff news turned out more benign than feared. Bonds saw gains along with falling long-term interest rates. Commodities were mixed, with higher prices for metals and lower for crude oil.

U.S. stocks started down Monday morning with the imposition of 25% tariffs on Canada and Mexico (10% on Canadian energy and China). However, markets reversed a bit when tentative agreements (with conditions largely symbolic) were made with both countries to delay tariffs by a month or more. It’s assumed that these extensions may continue until the review of the USMCA trade agreement in 2026. The Chinese tariffs of 10% were kept, although far below the 60% advertised during the election campaign, with retaliation from China far less dramatic than feared. Now, focus has turned to potential tariffs on European goods, which are assumed to be focused on the auto industry, among a few critical goods there and elsewhere. Some economists have been reticent about assigning odds of dramatic tariffs happening, but the odds of at least some degree of broader tariff increase have risen.

Economic Update 2-03-2025

• Economic news for the week included the FOMC keeping short-term interest rates unchanged, while U.S. GDP for Q4 came in above-trend but below the prior quarter, and personal income/spending positive. Gains in new home sales accompanied continued positivity for home prices. Durable goods and consumer sentiment fell back.
• Equities were mixed globally last week, with most regions down, although a few countries bucked the trend. Bonds were up slightly, as interest rates ticked down. Commodities were also mixed, related to uncertainty over upcoming tariff policy and a strong U.S. dollar.

U.S. stocks started off poorly on Monday along with the news from DeepSeek, noted earlier, although some of the surprise faded later in the week as markets absorbed the news as being perhaps less earth-shattering as it first appeared. By Friday, concerns over North American tariffs, also noted earlier, pulled down sentiment. Sectors were mixed for the unusual week, with gains in communications, health care, consumer staples, and financials; energy and technology each fell by 3-5%, due to different drivers. Real estate was down slightly, with little change in interest rates. Earnings reports from several technology firms appeared to offer mixed results, with much of the corporate discussion focused on the promise of AI as opposed to current earnings trends. In one of the bigger weeks for U.S. company earnings, per FactSet, just over a third of S&P 500 companies have now reported for Q4. Over three-quarters of these have noted a positive earnings surprise, and over 60% a positive revenue surprise, with the blended earnings growth rate having improved to 13.2% (which would be the best quarter since 2021 if it holds out).

Economic Update 1-27-2025

• In a shortened quiet week for economic releases, data included gains in existing home sales, while the leading index of economic indicators declined, as did consumer sentiment.
• Equities gained, especially abroad along with a weaker U.S. dollar as fears of tariffs were dampened a bit after the inauguration. Bonds were little changed domestically, but some foreign bonds fared well with a weaker dollar. Commodities were mixed, with declines in oil.

U.S. stocks fared positively, to more record highs for the S&P 500, on a market week shortened by the MLK holiday and also included the U.S. Presidential inauguration. By sector, leaders included gains of 4% for communications services and 3% for health care, followed by technology and industrials, while energy ended up as the only down sector, with a decline around -3%. Real estate gained over a percent, despite slightly higher interest rates. Per FactSet, 16% of S&P 500 companies have reported earnings, with blended (actual plus expected) 4th quarter year-over-year earnings growth at 12.7%, about a percent higher than it was at year-end and a few tenths higher than the prior week. There is much more to come on the earnings front over the next few weeks.

Economic Update 1-21-2025

• Economic data included the positive news of consumer and producer price inflation coming in softer than expected, while industrial production and housing starts also saw strong gains for the month. Also, retail sales increased, albeit to a lesser degree than hoped.
• Equities gained around the world, as markets celebrated tempered inflation results, causing a drop in long-term yields. Bonds fared well for the same reason of lower rates. Commodities gained, with hopes for stronger demand and some supply concerns.

U.S. stocks reversed back upward last week, as markets celebrated the Wed. CPI report, which was still sticky, but a bit cooler than expected, which drove down long-term yields. Sentiment also appeared to be helped by the Israel-Gaza ceasefire agreement, which lowers the temperature in the Middle East.

Value strongly outperformed growth, with every S&P 500 sector ending positively, and small caps outpacing large caps. Leading were cyclicals energy, materials, and financials, each up over 6% for the week. For the latter, as earnings season started, strong reports in financials drove prices higher for JPMorgan, Goldman Sachs, Citigroup, and Wells Fargo, among others. Defensive consumer staples and health care brought up the rear with minimal gains. Real estate also gained nearly 5% as interest rates came back down sharply. Financials started off earnings season, with big banks performing strongly, with stronger net interest margins (from higher interest rates) as well as hopes for an easier regulatory environment in the coming administration.

Economic Update 1-14-2025

• Economic data for the week included ISM services continuing to improve into solid expansion and an employment situation report for December that came in far stronger than expected.
• Equities fell back, along with the positive economic news pointing to less Fed policy easing action. Bonds accordingly fell as long-term interest rates rose ever higher. Commodities fared positively, with gains in all major groups. 

U.S. stocks fell back as higher interest rates continued to weigh on sentiment, with small caps now having reached -10% correction territory since late November, while large caps have held on significantly better. The week was shortened by the Thur. market closure to commemorate former President Carter. From over the weekend into Monday, reports surfaced that incoming President Trump had plans to ‘pare back’ tariff levels relative to what had been announced during the campaign (causing a drop in the value of the U.S. dollar), although he refuted these same claims, resulting in further volatility. As ISM services, JOLTs, and non-farm payrolls came in stronger than expected, it ended up being a ‘good news is bad news’ dynamic yet again, as that points to a path of the Fed moving at a slower easing path that was earlier hoped. This is especially true, as continued sticky inflation remains a wildcard. As seen by recent consumer sentiment results, plenty of speculation is swirling around possible worst case scenarios surrounding foreign trade policy this year, such as maximum tariff levels across the board, as opposed to a political likelihood of more tempered actual policy. How closely draft political policy morphs into reality will be unveiled over the next several months.

Economic Update 1-06-2025

• In a New Year holiday-abbreviated week, economic data included an improved (but still contractionary) ISM manufacturing report, minimally-changed construction spending, and continued movement higher for residential home prices.
• Equities fell globally last week, in contrast to a positive year (to say the least, in the U.S.). Bonds gained a bit as interest rates settled from recent volatility. Commodities gained along with rising prices for crude oil and gold.

U.S. stocks finished 2024 strongly, with the S&P up over 25%, representing the second straight year of gains of 20%+. Though, the full short week ended negatively, with what appeared to be some profit-taking, late seasonal adjustments, and a downgrade of Q4 U.S. economic growth as measured by the Atlanta Fed GDPNow (down from 3.1% to 2.6%). Small caps, on the other hand, had a solidly positive week. In the S&P 500 by sector, energy led with gains of over 3%, followed by utilities. The largest declines were experienced by materials, consumer discretionary (primarily volatility with Tesla), and consumer staples, each down at least a percent.

Some investors nervously await the outcome of various forms of the ‘January effect,’ whether it be the stock market performance for the entire month, or only the first 5 or 10 days. Obviously, this sample is too short to get a handle on 2025’s fundamentals and likely surprises to come, but from a behavioral standpoint, it can begin to set a tone for market sentiment.

Economic Update 12-30-2024

• In a holiday-shortened week, economic data included declines in durable goods and consumer confidence and a rise in new home sales.
• Equities gained around the world last week, with developed markets outearning the U.S. and emerging markets. Bonds fell back as a whole, as yields continued to rise due to a number of underlying dynamics. Commodities were mixed, with positivity in energy and base metals. 

U.S. stocks saw gains on net for the short week, despite a pullback by Friday, with additional pressure from higher long-term interest rates. Nearly every sector saw gains, led by energy, health care, communications, and financials, while materials and consumer staples saw slight declines. Real estate earned a small gain, despite interest rates rising again. The last several trading days of a calendar year can result in some unusual market movements at times, due to lower trading volumes because of vacations and institutional portfolio repositioning, including popular ‘window dressing’ trading activity, reset of cash levels, and other rebalancing activities.

Economic Update 12-23-2024

• Economic data in a busy pre-holiday week included the Federal Reserve cutting interest rates, as expected, although assumptions for next year have tightened. U.S. GDP for Q3 was revised higher by several tenths, while retail sales rose with strong holiday spending, and existing home sales rose. Also positive was the Index of Leading Economic Indicators turning positive for the first time in nearly three years. On the other hand, industrial production and housing starts fell back. PCE inflation for the month was weaker than expected, although the year-over-year pace was little changed.
• Equities fell globally for the week, along with the assumptions for less accommodative future policy. Bonds declined for similar reasons, as long-term yields climbed. Commodities fell back across the board, along with a stronger U.S. dollar. 

U.S. large cap stocks continued their gains last week, with the S&P, Dow, and NASDAQ reaching more all-time highs, while small caps fell back. Growth outperformed value by the largest margin in over a year, led by the concentrated Magnificent 7 group. By sector, strong gains in consumer discretionary of 6% (led by Tesla and Amazon), technology, and communications offset declines elsewhere, notably declines of -4% in energy and utilities. Real estate also fell back despite the small drop in yields.

Economic Update 12-16-2024

• Economic data included consumer price inflation rising, but at a similar pace to the prior month, while producer price inflation ticked up at a faster pace.
• Equities were mixed to down globally, with some positivity in U.S. growth and emerging markets. Bonds were down as yields rose for the week. Commodities gained on the heels of a spike in crude oil prices.

U.S. large cap stocks continued their gains last week, with the S&P, Dow, and NASDAQ reaching more all-time highs, while small caps fell back. Growth outperformed value by the largest margin in over a year, led by the concentrated Magnificent 7 group. By sector, strong gains in consumer discretionary of 6% (led by Tesla and Amazon), technology, and communications offset declines elsewhere, notably declines of -4% in energy and utilities. Real estate also fell back despite the small drop in yields.

Economic Update 12-9-2024

• Economic data included slight improvement in ISM manufacturing, but a slight deterioration in ISM services. The November employment report saw gains, as negative one-off conditions from the prior month normalized, although the unemployment rate rose a bit. Consumer sentiment rose slightly but was split along political lines around the election.
• Equities saw gains in both the U.S. and abroad. Bonds also rose, as interest rates fell back. Commodities were mixed, with agricultural prices higher but energy lower. 

U.S. large cap stocks continued their gains last week, with the S&P, Dow, and NASDAQ reaching more all-time highs, while small caps fell back. Growth outperformed value by the largest margin in over a year, led by the concentrated Magnificent 7 group. By sector, strong gains in consumer discretionary of 6% (led by Tesla and Amazon), technology, and communications offset declines elsewhere, notably declines of -4% in energy and utilities. Real estate also fell back despite the small drop in yields.

Economic Update 12-2-2024

• On a holiday-shortened week, economic data included U.S. GDP coming in unchanged from the initial estimate, higher home prices, but a drop in durable goods and new home sales, with some negative hurricane effects.
• Equities gained globally, with foreign outpacing U.S. due to a weaker U.S. dollar. Bonds also fared positively, as interest rates fell back upon a positive reaction to the new administration’s Treasury secretary nominee. Commodities fell as fading Middle East concerns negatively affected the prices of oil and gold.  

U.S. stocks continued upward, with several indexes in large, mid, and small cap reaching further all-time highs. In an abbreviated trading week, Monday started positively, with the nomination of hedge fund manager Scott Bessent for Treasury secretary, which was seen as a conventional choice. Bessent is viewed as relatively market friendly and pragmatic, while also a promoter of lower fiscal deficits and more tempered/gradual tariff policy, which removes some risk of more extreme and unanticipated trade policy repercussions. At the same time, the president-elect surprised markets by posting the intention of imposing 25% tariffs on both Mexico and Canada, our largest trading partners, in addition to an extra 10% on China, all related to flows of illegal immigrants and fentanyl, and 100% tariffs on EM countries that supported attempts to replace the U.S. dollar as the global reserve currency. However, news of a cease-fire agreement between Israel and Hezbollah had a positive influence on sentiment.

Thanksgiving Update 

As we celebrate Thanksgiving, it is a time to reflect on the economic progress that has been made and express gratitude for the resilience of healthy markets. The moderation of inflation, steady growth, and promising outlook for both equities and fixed income serve as reminders of the strength and adaptability of the economy. While uncertainties remain, the foundations for a stable and prosperous future are in place, giving us much to be thankful for this season.

The U.S. economy has demonstrated remarkable progress toward achieving a "soft landing," where economic growth slows without tipping into recession. As of now, U.S. real growth has settled at a healthy 2.7% year-over-year rate, and inflation has moderated to 2.7%. When excluding housing, inflation drops further to 2.1%, inching closer to the Federal Reserve's long-term target of 2%. While inflation remains slightly above this goal, the Federal Reserve has found it appropriate to begin reducing policy rates, signaling a more stable economic environment.

Economic Update 11-18-2024

• Economic data for the week included declines in retail sales and industrial production, while producer and consumer inflation remained sticky—especially on the shelter side.
• Equities lost ground across the board last week, as the post-election rally faded a bit. Bonds also fared poorly as interest rates ticked higher. Commodities also lost ground with a stronger dollar and demand concerns holding down sentiment.

U.S. stocks pulled back last week, in a reversal of pre- and early post-election gains. By sector, financials and energy eked out gains of a percent each for the week to lead, each with hopes for benefits from deregulation in the new administration, while all other sectors ended in the negative, led by an over -5% drop in health care, in addition to -3% drops in technology and materials. Health care sentiment was pulled downward by the announcement of Robert Kennedy, Jr. as nominee to lead the Department of Health and Human Services (responsible for nearly a quarter of the Federal budget within Medicare, Medicaid, and others), who’s had an extensive history of being critical of big pharma and vaccines, and has held some views seen as non-traditional in the medical community.

Economic Update 11-11-2024

• Economic news for the week included the U.S. Federal Reserve cutting the Fed funds rate by another quarter-point. In terms of data, ISM services ticked higher, remaining in strong expansion, and productivity saw gains in Q3, although labor costs rose as well.
• U.S. stocks gained ground for the week following the conclusion of the Presidential election, while foreign stocks saw mixed results. Bonds fared positively as yields pulled back from recent highs. Commodities were mixed, with gains in energy offset by a decline in metals.

U.S. stocks were little changed in the early part of the week, before the results of Tuesday’s general election. The strong Republican showing resulted in a strong rally starting Wednesday, with votes still being counted to determine the composition of the House and possible red sweep. The general hope for markets with this political arrangement is lower corporate taxes, a light-touch regulatory environment, and stronger upcoming earnings growth. The ends of election seasons have also tended to prompt a ‘relief rally’ of sorts historically. The FOMC rate cut was icing on the cake, although expectations for next year have become less dovish. Small caps fared especially well, as would be expected in such an environment.

Economic Update 11-04-2024

• Economic data for the week included U.S. GDP growth showing another strong quarter, as did personal income and spending. Manufacturing data continued to contract, as has been the trend over the past several years. The monthly employment situation report was far weaker than prior months, below lower expectations, due to the impacts of hurricanes and a major labor strike.
• Equities fell back last week with mixed company earnings call commentary and higher interest rates. Bonds fell back as yields continued to move higher, with concerns over fiscal spending. Commodities fell back as geopolitical concerns related to the Middle East faded a bit.

U.S. stocks fell back as a whole last week, with notable weakness in large cap growth offset by lesser declines in value and minimal change in small cap stocks. By sector, communications gained over a percent (mostly Alphabet/Google) to lead, while technology (Apple, Microsoft, and NVIDIA), utilities, and energy all lost several percent for the week. Real estate also fell by -3% along with higher long-term interest rates. On Thursday, markets took a downward turn after quarterly reports from Microsoft and Meta especially. Despite decent Q3 numbers, this appeared to be due to continued concern over high levels of AI infrastructure spending, and an uncertain timeline for this capex to translate into sales. Obviously, the higher the price ratios rise for such companies, the greater the market sensitivity to potential disappointment. Sentiment on Friday improved dramatically as a weak jobs report (albeit weather- and strike-driven) provided more hope again for keeping Fed rate cuts on track. With such a close national election race, removing the uncertainty will be a key theme of the coming week.

Economic Update 10-28-2024

• Economic data for the week included a decline in overall durable goods, mixed results in housing sales, as well as higher continuing jobless claims, due to a variety of weather and labor issues.  
• Equities declined globally, with higher interest rates and less certainty about central bank rate easing looking forward. Bonds fell back along with rising yields at the longer end of the curve. Commodities gained, largely due to energy, despite a stronger dollar.

U.S. stocks lost ground for the first time in six weeks, as higher interest rates associated with an assumed more drawn-out Fed rate cut cycle and perhaps higher future deficits post-election weighed on sentiment. By sector, consumer discretionary experienced a percent gain (led by a 20%+ return for Tesla, upon better than expected earnings and vehicle sales projections) and a small gain for technology, while negativity was most pronounced in materials, industrials, and health care. Large cap fared better than small cap. Real estate fell about -2% upon the rise in yields.

At the September meeting, the U.S. Federal Reserve Open Market Committee decided to reduce the Fed funds rate by -0.50% to a new range of 4.75-5.00%. There was one voter dissent, where a member opted for only a quarter-percent cut.

The formal statement was updated to reflect the new easing bias, noting that inflation has simply “made further progress...but remains somewhat elevated.” Also noted was that the committee’s labor and inflation goals “are roughly in balance.” Later in the statement, labor was again mentioned in a reminder of the Fed’s dual mandate in “supporting maximum employment” in addition to its inflation objective. The new quarterly Summary of Economic Projections (SEP) put the Fed funds rate expectation at 4.4% for year-end 2024 (down from 5.1% in June), 3.4% for 2025, 2.9% for 2026 and 2027, while the anticipated long-term rate ticked up a tenth to 2.9%.

There hasn’t been this much mystery shrouding a policy change in some time, and surprise announcements have not been common in recent years. Before the meeting, CME Fed funds futures markets evolved toward the chances of a -0.50% cut at as high as 60%, and a -0.25% move at around 40%, after wavering between the two for much of the past month (wisdom of futures markets is correct again). Chances remain high for cuts in November and December, with odds pointing to a year-end rate of around 4.25%. The furthest-out estimate in Dec. 2025 shows the highest probabilities for Fed funds at around 3.00%.

Economic Update 6-03-2024

• For the short holiday week, economic data included U.S. GDP growth being downgraded a few tenths, continued improvement in lower PCE inflation, higher home prices, and improved consumer sentiment.
• Equities were mixed globally, with developed markets down a bit on net, while emerging markets fell further. Bonds were little changed domestically, while foreign markets saw mixed results. Commodities fell back across a variety of sectors.

U.S. stocks fell on the shortened week, but ended May with solid gains to offset weakness from the prior month. By sector, energy and utilities led the way with gains upward of 2%, while technology fell back by over -2% (as a positive week for some stocks was offset by weakness in Salesforce, Adobe, and Microsoft). Real estate also gained, with Friday’s ‘less bad’ inflation news providing a boost.